What changes can we expect in the summer tax package?
On 4 and 11 June 2019, the Government submitted to Parliament a summer package of three bills to amend tax laws. The main purpose of these bills is to transpose the provisions of the EU’s Anti-Tax Avoidance Directive into Hungarian law, and to amend and clarify tax legislation currently in force in Hungary in line with domestic needs, including in particular a reduction in the social tax rate, clarifying the rules on corporate tax groups, introducing VAT reclaim opportunities relating to bad debts, and amending the rules on corporate tax advance top-ups.
The following is a brief summary of the most important elements of the summer tax package. Please note that, in its present state, the package is a collection of bills and will only amend current tax legislation if adopted by Parliament.
If you have any questions regarding the above, please contact your usual relationship partner, or dr. Tamás Lőcsei (e-mail: tamas.locsei@pwc.com) partner or László Deák (e-mail: laszlo.deak@pwc.com) partner.
- Changes concerning corporate tax
- Changes to the Local Taxes Act
- Changes to the innovation contribution
- Changes related to the energy suppliers’ income tax
- Changes related to advertisement tax
- Changes to the small business tax
- Bills concerning value-added tax
- Changes related to personal income tax
- Changes concerning social tax and social security contributions
Changes concerning corporate tax
The tax advance top-up liability is to be abolished with effect from the tax year starting in 2019. However, corporate taxpayers may voluntarily top-up their tax advances to the amount of their expected payable tax for 2019, and achieve a tax advantage of 7.5% in respect of the 2019 tax year on that account by allocating a portion of their corporate taxes to support spectator team sports or film productions. Taxpayers using a non-calendar financial year will have to top up their tax advances for the last time in the tax year in which the deadline for such topping up tax advances precedes the bill’s adoption (i.e. the date on which the amending act enters into force).
The abolition of the tax advance top-up liability is expected to have a positive impact on taxpayers in terms of administration and cash-flow. It should be noted, however, that under the amended rules, from the 2020 tax year the opportunity to claim a tax credit of up to 7.5% through allocating a portion of corporate taxes will only be available to those taxpayers who make allocations from monthly or quarterly tax advances. Accordingly, those who wish to make the most of the benefits available through tax allocation should decide by December 2019 on the tax advances that they wish to allocate from January 2020.
The relevant bill also includes several new legal concepts and clarifications. For example, it introduces trust funds as a new form of taxable person subject to corporate tax, and provides a related clarification to the definition of dividends. According to the bill, the taxable base of trust funds must be determined similarly to the tax base of the assets managed under a trust agreement.
In another significant change, the HUF 500 million threshold for claiming development tax incentive on investment projects implemented by SMEs will be gradually reduced over several years. By 2023, medium-sized enterprises and small businesses will only need to implement investment projects totalling HUF 100 and 50 million, respectively, to qualify for development tax incentive. The new thresholds may be applied to qualifying investment projects reported (commenced) after the adoption of the relevant amendments.
Changes concerning corporate tax groups
The bill also includes amendments and clarifications concerning the rules on corporate tax groups. For example, businesses that commence operations during the year will be able to join corporate tax groups. Such businesses will be deemed to become group members on the date on which they become subject to corporate tax in Hungary. Under an important change affecting many corporate taxpayers, administrative duties relating to corporate tax groups will be simplified whereby group members will no longer be required to make individual declarations to the Tax Authority directly. Instead, such declarations will have to be made to the group representative. The bill also proposes abolishing the requirement for group members to use the same bookkeeping currency. If adopted, this amendment could represent a major simplification for corporate tax groups.
Another significant change concerning corporate tax groups concerns the tax treatment of entitlement to tax incentives obtained before joining a tax group, both during the group's existence and upon termination of group membership. Accordingly, group members that undertake to meet the relevant criteria upon claiming a tax incentive may continue to benefit from the incentive even if they leave the group, provided that they continue to meet those criteria.
The rules on the interest deduction limit will also change slightly: the amount of the current limit will remain in place, but the method of calculation will change for corporate tax group members.
Harmonisation with EU law
The bill on legislative harmonisation introduces a number of new definitions, most of which are related to the implementation of the EU’s ATAD II (Anti-Tax Avoidance Directive). The bill introduces, among others, (i) hybrid mismatch rules under financial instruments; (ii) hybrid payments made to a hybrid entity or to a permanent establishment; (iii) hybrid payments made by a hybrid entity ; and (iv) double deductions achieved by payments made by a hybrid entity or permanent establishment. In connection with ATAD II implementation, the bill prescribes detailed exit rules for companies relocating assets outside or inside the EU, and lays down additional anti-avoidance rules.
Dispute resolution and exchange of information
A significant change in Hungarian tax regulations is that the provisions of DAC6 will be implemented. DAC6 is the EU’s Directive on the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. The bill also contains detailed procedural rules for the resolution of tax disputes. As a result, detailed rules will be laid down on the following:
- lodging complaints, and deciding on the merit of complaints;
- mutual agreement procedures;
- reconciling differences with national procedures;
- initiating the dispute resolution procedure;
- setting up an advisory committee, its operation and procedures;
- bearing the costs, and making decisions;
- based on an agreement between the competent authorities of Member States, an alternative dispute resolution committee can also be set up.
Changes to the Local Taxes Act
The bill extends the scope of provisional exemption from building and land tax to include non-profit organisations that have the right to use or manage a property. From 1 January 2020, it will only be possible to file local business tax returns with the tax authority if the returns in question are correct.
In contrast with other tax types, the top-up liability for the local business tax will not be abolished. As a result, companies using double-entry bookkeeping whose annual net sales revenues exceeded HUF 100 million in the tax year preceding the current year, will still have to top up their local business tax advances to the amount of their expected payable tax for the tax year.
Changes to the innovation contribution
The bill abolishes the tax advance top-up liability for the innovation contribution. Taxpayers will be exempted from this obligation from December 2019. Taxpayers using a non-calendar financial year will have to top up their tax advances for the last time in the tax year in which the deadline for topping up tax advances precedes the bill’s adoption (i.e. the date on which the amending act enters into force).
Changes related to the energy suppliers’ income tax
The bill abolishes the tax advance top-up liability for the energy suppliers’ income tax. Taxpayers will be exempted from this obligation starting from December 2019. Taxpayers using a non-calendar financial year will have to top up their tax advances for the last time in the tax year in which the deadline for topping up tax advances precedes the bill’s adoption (i.e. the date on which the amending act enters into force).
Changes related to advertisement tax
From 1 July 2019, provisionally until 31 December 2022, the advertisement tax rate will be reduced to 0%, and taxpayers subject to the advertisement tax will not have to fulfil their reporting and filing obligations during this period. For tax years including 1 July 2019, the tax payable will be prorated, based on the tax payment obligation for the preceding period.
Changes to the small business tax
According to the bill, the small business tax rate will be reduced from 13% to 12%, effective from 1 January 2020.
Bills concerning value-added tax
Simplification of call-off stock arrangements
In accordance with the relevant EU directive, harmonized rules on call-off stock arrangements will be introduced in the European Union from 2020, and the Hungarian VAT Act will be amended accordingly. Call-off stock arrangements involve cases in which a taxable person established in Hungary transports or arranges transport of its own goods to another EU Member State or, in the opposite case, a taxable person established in another EU Member State transports or arranges transport of its own goods to Hungary, to a future customer’s storage facility, with a view to supplying those goods to the customer at a later stage. In accordance with the relevant harmonised EU regulations, the amendment clarifies the conditions under which goods can be moved from one Member State to another without giving rise to a VAT registration or VAT payment obligation for the owner of the goods.
Compared to the previous rules, the most significant change is that if the customer does not remove the goods from the call-off stock, i.e. supply to the customer does not occur within 12 months, the related movement of goods will be deemed as an intra-Community supply/acquisition, and the appropriate legal effects will automatically become applicable as of the last day of the 12th month following the movement of goods. We note that the bill includes a special transitional arrangement under which the aforementioned legal effects will automatically become applicable on 31 December 2020 for goods stored in call-off stock in Hungary by non-resident taxable persons, who will thus incur a VAT registration obligation. As regards call-off stock stored abroad by Hungarian-resident taxable persons, the bill provides that the transitional arrangements of the EU Member State where such stock is located must be taken into account. Accordingly, Hungarian-resident taxable persons need to make sure that they are familiar with the arrangements that will come into force in those Member States where they intend to maintain call-off stock on 31 December 2019.
Rules on chain transactions
The new rules proposed in connection with chain transactions are also designed to ensure compliance with the new EU harmonised regulations. There is no change compared to the previous rules in that if a taxable person acting as an intermediary operator in the chain transports or arranges transport of the goods, it has to be deemed as the acquirer of the goods in the course of arranging the transport, meaning that the supply of goods to the intermediary operator has to be deemed as the cross-border transaction to which transport can be ascribed, which is tax exempt. If, however, the intermediary operator indicates to the taxable person from which it acquires the goods – i.e. its supplier – the VAT identification number issued to the intermediary operator by the Member State from which the goods are dispatched or transported, the intermediary operator has to be deemed a supplier and the supply deemed a cross-border transaction. Compared to the previous rules, therefore, the amendment introduces an additional condition that transport by the intermediary operator as the acquirer of the goods can only be challenged if the intermediary operator’s VAT identification number has been indicated to its supplier. In practice, of course, a number of questions could arise concerning the manner in which such communication should be made, as well as the related documentation obligations that could arise for the supplier.
Intra-Community supplies
According to the new rules proposed by the bill, the tax exemption of intra-community supplies will be subject to the condition that the taxable person acting as acquirer discloses to the vendor its EU VAT number established in the other member state. We also note that no tax exemption will apply to cases in which the taxable person acting as vendor files an incorrect or incomplete intra-Community Sales List for a specific transaction unless it certifies that it acted in good faith, and corrects the statement at the same time. Therefore, filing correct IC Sales Lists will be paramount for companies because this will be a condition for tax exemption.
Tax exemption for services relating to the importation of goods
The new rules proposed by the bill lay down clearly that services relating to the importation of goods can be tax exempt on condition that they are supplied directly to the importer.
Special VAT refund procedure
According to the bill, taxable persons may request a refund from the tax authority of the input VAT charged to them if they, for reasons beyond their control, are unable to recover it in any other manner, which is contrary to the principle of fiscal neutrality. Requests may be submitted to the tax authority no later than six months prior to the end of the period of limitation concerning the tax to be refunded.
Deducting bad debts from the tax base
According to the bill, from 1 January 2020, taxable persons would be able to retroactively deduct bad debts from their tax base through self-revision. Subject to certain conditions, it would be possible to reduce the tax base by the net amount of receivables recognised as bad debt. The bill specifies in detail the claims that may qualify as bad debt under the VAT rules, i.e. the cases in which the above option could be invoked. Under the transitional provisions, taxpayers would first be able to exercise this option in cases in which the date of supply of the goods or services forming the basis of the claim falls after 31 December 2015.
VAT rate reduction for commercial accommodation services
Under the bill, the VAT rate for commercial accommodation services would be reduced from 18% to 5% from 1 January 2020.
EKÁER reporting
Self-revision will be introduced for EKÁER for a specified fee and with a very tight deadline. Under the bill, taxpayers will be allowed as of 1 January 2020 to perform a one-time revision of data supplied in EKÁER reports that are already closed or no longer valid, within three working days after the reports are closed or expire but no later than the start of the relevant tax audit, subject to payment of a HUF 10,000 self-revision fee per item of data.
Changes related to personal income tax
The most significant change is the introduction of tax exemption for mothers with four or more children, including adult children. Eligible mothers (birth or adoptive) will be fully tax exempt on their consolidated taxable income and will also be able to claim family allowance on account of their children. This tax exemption can be claimed from 2020 onwards by submitting a declaration on tax advances to the mother’s employer or other payer during the year.
In line with the Civil Code, the Personal Income Tax Act now includes a definition for private foundations, and regulates the taxation of payments from such foundations similarly to trust income.
Changes concerning social tax and social security contributions
An independent draft bill includes the much anticipated mid-year reduction in the social tax rate. The social tax rate will reduce from 19.5% to 17.5% from 1 July 2019. This amendment will not only reduce the tax burden of wage income but also the cost of fringe benefits and company events.
Similar to the rules already adopted for social security contributions, the bill regulates the social tax liability of persons who began their secondment in the UK before the date of Brexit, if any.
From 1 January 2020, the monthly and daily rates for healthcare service contributions will be raised from HUF 7,500 to HUF 7,710, and from HUF 250 to HUF 257, respectively.
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